Financialized Capitalism

David Spencer points to financialized capitalism as the new game in town. He suggests that capital has pursued financial investment strategies, increasing the flexibility of capital, reducing the bargaining power of labor and severing the relationship between production and profit. The latter reduces investment in the real economy, further undermining the need for labor. Spencer is writing from the point of view of the UK, but his basic analysis is consistent with the US experience. Jerry Davis has made an even broader argument for the US, not only has the financial principle replaced production in the strategies of firms and the financial service industry but has become an ascendant value in households and the state.

Ken-Hou Lin and I have been studying financialization’s links to US corporate behavior and think that the analysis of financialization requires recognizing more than two actors – capital and labor. There are varieties of “capital” actors in this game — financial service firms, short-term investors, long-term investors (e.g. pension funds), non-finance big corporations, and main street. There are also varieties of “labor” in our financialized capitalist system – workers, professional-managerial workers, executives and CEOs, and investment brokers. (And then there is the state, where the rules are written, which displays its own heterogeneity beyond the scope of our emerging expertise.) Where you sit in the system determines whether your power has grown of been undermined by financialization.

Returning to the issue of macro-economic efficiency, Spencer suggests that financialization undermines investment in the real economy. This seems plausible to us and we look forward to research that demonstrates if this is the case. Consistently, Ken-Hou Lin has recently shown that, at least for the largest US non-financial corporations, financialization investment strategies undermine employment, especially for low and middle skill jobs. This suggests a role for the state in the politics of financialization as well. States, even states captured by financial capital, still have a long term interest in a vibrant economy. If Spencer is right that financialization undermines investment in the real economy, and I suspect that he is, we can look forward to a future of economic decline for almost everyone in financialized economies such as the US and UK. Now all we need is a political or moral program to disrupt financialization as an ascendant value.